introduction to finance II |
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Task 1
What differences do you notice about the different types of cost below?
What differences do you notice about the different types of cost below?
Information
When setting up and running a business it is inevitable that money will need to be spent. In finance we classify these costs into two separate areas of spending, fixed and variable.
When setting up and running a business it is inevitable that money will need to be spent. In finance we classify these costs into two separate areas of spending, fixed and variable.
Key terms
Output refers to the number of units a business makes or sells.
Fixed costs are those costs that do not change when a business changes its output.
Variable costs are the costs that change in direct relation to the businesses output.
Output refers to the number of units a business makes or sells.
Fixed costs are those costs that do not change when a business changes its output.
Variable costs are the costs that change in direct relation to the businesses output.
Task 2
Categorise the following as either a 'fixed' or a 'variable' cost. If you are unsure consider if the cost would change if output changed, if no then it is fixed, if yes than it is variable.
Categorise the following as either a 'fixed' or a 'variable' cost. If you are unsure consider if the cost would change if output changed, if no then it is fixed, if yes than it is variable.
Key term
Total costs are all the costs a business incurs, this is calculated by adding fixed and variable costs.
Total costs are all the costs a business incurs, this is calculated by adding fixed and variable costs.
Task 3
Read the case study and answer all questions to the best of your ability.
Case study: ML INC. II
In her second month of trading, Mona Lott continued to sell t-shirts at £12 per unit. She noticed that despite her sales increasing she actually made less profit than the previous month, so she wrote down all her finances to try to work out why.
The company that ran her website charges £100 per month, the postage and packaging was £848 (£2 per unit), the raw materials cost £1696 (£4 per unit) and she also pad herself a wage of £1,000 as she had been working so hard.
Read the case study and answer all questions to the best of your ability.
Case study: ML INC. II
In her second month of trading, Mona Lott continued to sell t-shirts at £12 per unit. She noticed that despite her sales increasing she actually made less profit than the previous month, so she wrote down all her finances to try to work out why.
The company that ran her website charges £100 per month, the postage and packaging was £848 (£2 per unit), the raw materials cost £1696 (£4 per unit) and she also pad herself a wage of £1,000 as she had been working so hard.
Stretch & challenge: What could have caused ML INC. to make a smaller profit in a month where revenues were higher?
Plenary
Watch the video below and discuss the reasons why Toys R Us went bankrupt.
Watch the video below and discuss the reasons why Toys R Us went bankrupt.